So today I received an email from some dude (we'll call him Bob) who writes a "Web 2.0 E-Letter" alerting me to the fact that he has just sent his email list of 600 a somewhat scathing review of Blinksale. In the interest of quickly diving into the good stuff, let's read some of the highlights, starting with the introduction:
Dear Blinksale,
I am the author of [title removed] which is an E-Book which gives an entrepreneur's point of view of Web2.0 and focuses on the various tactics, techniques and strategies that Web2.0 business requires now-a-days.
My book focuses especially on how Web2.0 businesses need to hide their monetization strategies as much as possible in order to be seen as "friendly" and welcoming enough for the thousands of customers to actually sign up and start paying for the service or product.
A common method of disguising monetization strategies is the new idea of "micro payments". This is when very small amounts of money are charged for individual aspects of the product or service on offer, instead of charging a large monthly charge for an account, such as your site.
After seeing your site from a large Web2.0 directory, I was extremely impressed by the design and concept of your website, which lead me to sign up.
On signing up, however, I was very surprised to find how "exposed" your monetization strategy actually I, which is why I am writing today.
Today, I wrote an email to my email list of 600 about an "Invoicing Web2.0 Site", not mentioning it was you I was talking about. I explained about how micro payments are what I see as a fundamental part of Web2.0 business strategy, and want to know your thoughts and ideas on the matter.
Wow... where do I start with this? Well, since he was kind enough to not mention Blinksale by name, I'm not going to mention his name or E-book either in my response. But really, we're just getting started. The real gem is the email itself sent to his mailing list (of 600). At first, I though I might break this down into smaller chunks, but really, it's best to read it in its entirety.
Dear [removed]
I have been observing Web2.0 sites and businesses for quite some time now, and there is something that keeps jumping out at me every time I discover a new "Web2.0 Start-up".
That thing is the apparent *overpricing* of the services or products that the company is offering. I mean, I discovered about this new Invoicing Web2.0 site the other day, which is an online application which you can use to send invoices, etc by email.
Sounds good, doesn't it? Well, then I went to the sign-up page to see what it was all about, and to my horror I discovered that their pricing strategy is somewhat "Out Of This World".
If you are a business, you're going to be sending a decent amount of invoices per month, right? Well, for this company's "Gold Plan", it was $24 a month just to send 250 invoices! The other prices included, $49/month for 1500 invoices and $12/month for just 50 invoices.
Now, consider the costs that this Web2.0 company has - designers, coders, not to mention the marketing and advertising teams; which needs to be fuelled with allot of cash.
If I was looking for a decent invoicing program online, then the initial impact of the homepage testimonials, program example and nice design would get me interested, however, I would be horrified at the prices! For that cost, I would expect an entire account application, which you don't get with the site I have in mind.
I have purposely not mentioned any names here, since I want to actually show this email to the site in question and see what they say, but think about where I am coming from here:
Web2.0 is the reinvention of the Internet. Therefore, you could potentially be getting ten's of thousands of members in a short space of time, all of whom are willing to pay for a revolutionary and quality service. Now, imagine how many of those potential customers will be put off by the super extortionate prices that you are asking for!
For any Web2.0 company, the aim is to conceal the monetization as much as possible, and so by adopting a "cost per product" scheme, I feel that many Web2.0 startups could actually become more successful. For the invoicing company that I have been complaining about, I would certainly adopt this strategy, and even make it so that more invoice features would cost more.
This way, perceived value of the product you are offering soars entirely and you will find that more people actually sign up for the free account, who can be marketed to with something else.
I guess what I am trying to get at is the idea of "micro-payments", which I have been discussing with some customers of [my e-book] on Skype. The idea of micro-payments is that only a small amount is charged for a product or service which otherwise would have been charged at maybe 500% of that. For example, with the invoicing site, why not charge $.50 for one invoice to be sent, and allow unlimited invoices to be sent from any account.
This not only makes it affordable to most people and means that with a lower cost, more invoices are likely to be sent than with the previously capped accounts.
This then can be disguised and offset by the perceived value of stationary that would be needed to send a normal invoice, with the paper, ink and postage costs. This would cover up and justify the costs that the Web2.0 invoices cost to send each, persuading more potential customers to become paying customers...
This email is not intended to advertise or to mock. It is intended to give you a real life example of how "micro-payments" can be employed in today's Web2.0 era. I cannot emphasise enough how important it is to conceal monetization strategies in Web2.0, because the whole business could depend on it!
I'll send this e-mail to the company I am talking about and see what they have to say about their account structure, and let you know what they say.
Have a good day,
[Bob]
How's that for some buzz-word bingo? Have a good day, indeed. There are so many things wrong with this email that it's not funny. It's freaking hilarious. But wait, there's more. Here's how the email to us was wrapped up:
I could have easily edited that email because I believe it may be a little “harsh” on your pricing, yet I really want to raise a point with my list and want to be as transparent as possible.
Well, thanks...
I mean, I guess you could easily implement the payment structure to allow for micro payments for sending a single invoice, since you’ve created a really good application; but I really want to know why you have adopted the monthly payment scheme, instead of offering the ability of micro payments.I am not ridiculing your company in particular; I am simply trying to discover why you charge so much a month for your service, when you could get people such as some of my contacts who wouldn’t mind sending out variable amounts of invoices at say $.50 a go.
Please let me know your thoughts on this issue,
Yours sincerely,
[Bob]
Okay, since he signed his email "yours sincerely" I don't want to be a total jerk here, but Bob wanted to know my thoughts. So here they are.
First of all, Bob opens up explaining that Web 2.0 businesses "need to hide their monetization strategies as much as possible in order to be seen as 'friendly'". What the heck? Can I ask why, Bob? What's wrong with paying for something and getting something in return? My late grandfather, a businessman who died too young, lived by the mantra that if both parties are happy then it was a good business deal. It doesn't really matter what you paid and what you received in return if both seller and buyer are happy, does it?
Bob talks about wanting to be "transparent as possible" yet he is encouraging his readers to hide their monetization strategy. Bob also talks about micro-payments while ridiculing Blinksale's monthly subscription fees.
I don't have a problem with micro-payments. In fact, we run another website that makes a tidy profit off of micro-payments. I should note that IconBuffet also sells larger goods as well, but the bulk of our purchases are $5 or less. That said, we chose a monthly subscription model for Blinksale for a variety of reasons.
First, micro-payments are expensive to process. While merchant accounts exist that tailor to the needs of micro-payment processors, a typical credit card merchant processor takes $.20 to $.40 off a transaction plus 2-4 percent of the transaction. Bob suggests charging 50 cents an invoice for Blinksale. We'd lose about $.35 cents on that transaction in merchant feeds. That leaves us with 15 cents an invoice. Brilliant.
We lose about $.65 on a $12.00 charge. That nets us over $11.00. Much better.
Bob says our pricing strategy is "out of this world," and rips our Gold plan for charging a business $24 a month to send up to 250 invoices. Let's do some math. Our Silver plan cuts off at 50 invoices. So if you're on the Gold plan that means you're typically sending over 50 invoices a month. 50 invoices at $.50 a pop (as Bob suggests) would cost you $25. Then, we only would make 30 cents on the dollar due to the merchant fees, and we're left with about 8 bucks. Congratulations, you've now successfully created a business model where both the buyer and seller are getting screwed. The bank however makes out pretty well.
Of course, Bob might counter and suggest we simply track the number of invoices someone sends during a month and simply charge them at the end. This would work fine, if not for three things:
First, this only works if a subscriber keeps their credit card info up-to-date. If it's expired, then you're left hunting down payment for services already rendered. Pain in the butt. Second, if you've ever built a web app, you know that billing systems can almost be as complex as the app itself, if not more so. Finally, if we did it this way, Blinksale would still not be profitable. Let me explain...
Blinksale offers a Free plan that lets you send up to 3 invoices a month for free. No catches. Merry Christmas. Since we're selling Blinksale primarily to small business and independent contractors, we make the assumption that if you're sending more than 3 invoices a month you must be making a little money. Probably enough money to justify a monthly fee of $12 to send and track your invoices. We actually used to only charge $6 for the Silver plan. We found that $6 a month does not cover the cost of overhead for Blinksale. $12 a month does. And most folks who are willing to spend $6 a month for a business service are willing to spend $12 a month as well. We're talking about 3 Starbucks lattes here folks.
Somehow these folks are not put off by "the super extortionate prices" we are asking for as Bob describes. Bob also advocates that we go to a cost-per-feature model, nickel and diming our users for individual features.
Yeah, besides creating a REALLY complicated billing system, that's a great way to hoodwink folks and piss them off. I think openness and honesty are still appreciated in this world. And surprise! I did the math on a cost-per-feature model as well, just to see what the numbers would look like. Trust me, it's not more profitable than a monthly-subscription model. Not by a long shot. Not even close. For a service like Blinksale, you'll make times over more revenue with a subscription model.
But wait, there's more.
Bob also asks us to consider the costs that Blinksale has: "Designers, coders, not to mention the marketing and advertising teams; which needs to be fuelled with allot [sic] of cash." Oh Bob, that's so not right. Marketing and advertising teams are soooo Web 1.0.
Guess what? I am the marketing and advertising team. I'm also the designer. JC and Scott are the coders. We all share support email. We're a lean, mean machine Bob. And I find it funny that you're writing your "E-letter" to a bunch of Web 2.0 hopefuls giving them instructions on how they can be a part of the revolution too. Then you tell them how it needs to be fueled with a lot of cash. Yeah see, we bootstrapped Blinksale out of our nights and weekends. We didn't have a load of cash to blow.
There are two personal qualities you need to make a killer product on the web: Talent and Determination. We have an ample supply of both around the studio here. In fact, an excess of cash may simply be masking a lack of those two qualities. I'm not saying cash doesn't play a part. It's just highly overrated.
I visited Bob's website. He sells an E-book. You know, the kind with the fake digital cover that's was someone's weekend Photoshop project? He calls it his "Web2.0 learning system." His homepage describes how his book reveals insider secrets and is "The World's First Step-By-Step Guide On How To Create The Next MySpace Or YouTube!"
I'm not making this up. Bob's E-book will also give you a "Detailed Explanation of What the Web2.0 Phenomenon Really Is." He'll tell you "What Web2.0 Concepts Are Crazily Popular with ALL Users," and the "5 Easy Steps to Web2.0 Wealth." Finally you'll "Discover How To 'Win Your Users Eyes' With Web2.0 Graphics Tips."
Okay, and did you notice how Web and 2.0 were ran together in all those sentences above. How do you spell "SEO" folks?
Oh, and did I mention he also pawns his DIGG Traffic Maximization Handbook on his site? Can I make one small request please? DIGG this.
You can get Bob's Web2.0 E-book, the Digg thing, plus his Web2.0 2007 Predictions for only $47.
Finally, I'll close with my favorite part of the site: The About page talks about Bob's plans to create an "Amazing Web2.0 site." Let me offer some advice Bob. Why don't you create something first, then you can sell us your amazing E-book. There's a vast difference between running your trap and building something great. Actions speak so much louder than words.
Personally, I don't blog that much. I should probably blog more often. But if my lack of noise is due to the fact I'm busy working on living, breathing products that make people happy and provide us a living, I can probably live with that.
Bob wraps his E-letter up by letting his readers know that he sent his email to us as well, and would let them know what we have to say. I can only hope he does. They need to hear a different story than the drivel that Bob is shilling.
So every year